Assessment of Directors’ Liability Amendment Act

Mar 2017

Assessment of Thailand’s new Directors’ Liability Amendment Act

Shock waves were felt throughout the Thai business community when Thailand’s new law on directors’ liability became effective on 12 February 2017. Under the amendment, liability was imposed on company directors who act—or omit to act—in connection with a violation of 76 other Thai laws.

But is the panic justified? The reason that the new law has been promulgated is that the government wants to formally change a specific provision in each of these 76 laws, which the Constitutional Court established was unenforceable.

The Constitutional Court has already ruled that Section 54 of the Act on Direct Sales & Marketing, B.E. 2545 (2002) (the “Direct Sales Act”) runs contrary to Section 39 of the Constitution, B.E. 2550 (2007), which provides that, “In a criminal case, an assumption must be made that the accused or defendant is not guilty.”

Section 54 of the Direct Sales Act assumes that the managing director, manager, or any person responsible for the operation of the company is guilty in contravention of the Constitution, even if they didn’t commit the crime or have anything to do with the company’s wrongdoing. Section 54 of the Direct Sales Act was thus deemed “unconstitutional, void and unenforceable” per Section 6 of the Constitution, B.E. 2550 (2007). Under the old law, they would have been automatically guilty unless they could prove their innocence.

In total, 76 laws contain similarly unconstitutional provisions. One of the severest is the Act on Offenses of Limited Companies, B.E. 2499 (1956), Section 25 of which assumes that “all directors” of the company are guilty. Hence, the government has taken the decision to change all provisions at once rather than wait for them to be challenged in the Constitutional Court. The Directors’ Liability Amendment Act amends each section of the relevant law one by one (the entire legislation totals 23 pages).

In essence, the new law stipulates that directors will only be liable if they order or commit corporate wrongdoing, or omit an act or fail to act, resulting in the company’s wrongdoing, where they had a responsibility to act.

How much of an improvement is the new law on the old one? Not much, but at least it doesn’t assume guilt unless proven innocent. In any case, the Directors’ Liability Amendment Act highlights the importance that the government and the business community afford the issue of directors’ liability. Directors are tasked with fiduciary functions and have a responsibility to ensure that the company is not involved in illegal activities. To be exonerated from alleged corporate wrongdoing under the new law, directors still have to prove that they have carried out their duty properly and that they have no knowledge of and do not give consent to wrongdoing.

Directors are able to use the minutes of Board of Directors’ Meetings as a major piece of evidence in their defence. The Directors’ Liability Amendment Act may be viewed as a warning sign, insofar as corporate entities should change the way that board meetings are organized, and ensure that minutes are recorded accurately so that they can be used to defend against allegations of directors’ personal liability.